The good news is that Berkeley’s revenues are up and expenses are down in the current fiscal year. Using very conservative forecasts, Berkeley budget manager Teresa Berkeley-Simmons projected revenues in the 2014 fiscal year will be $800,000 ahead of the budget passed last June, and expenses over $2 million lower. As a result, so-called carryover expenditures — from revenues accumulated in previous years for as-yet uncompleted projects — will be reduced from $6.3 million to $3.3 million.

The bad news, however, is that Berkeley’s pension contributions will grow at least $2 million a year for the next six years, based on Calpers’ projected rate increases (see table above). The $42.8 million budgeted for FY2015 will rise to at least $53.5 million for FY2020. Worse, according to Berkeley finance manager Bob Hicks, Calpers seems certain to ratchet up its rates at the next revision.

The near-term good news, was a consequence largely of the improving housing market.

Both the secured property tax and property transfer tax revenues are projected to be over $1 million higher than budgeted, as assessed values increase and property sales pick up. Double-digit growth at seven of the 12 hotels in Berkeley means that the occupancy tax is projected to be over $600,000 above budget. But the utility users tax revenues are projected to be down nearly $400,000 on budget, and parking fines are projected to be nearly $1 million below budget.

“Have we gotten to a tipping point where the parking fines are so high that people are afraid to park on our streets?” asked Councilman Laurie Capitelli. “People are being extra cautious. If we had not raised parking fees, would we have gotten more money?”

“It’s not as though no one is parking, they’re just not getting tickets,” said City Manager Christine Daniel. “The idea (on parking fees) is not to raise revenue, although everyone thinks so, it’s to create turnover. If we’re creating turnover, that’s good for the business districts.”

The rising pension costs have been looming for some time. But the dramatic increases are the result of both a change in Calpers’ actuarial model and the underperformance of investments during the recession.

The new actuarial model provides that the plans will be 100% funded in a fixed 30-year time period, rather than the previous rolling 30-year period. Additionally, the time period to “smooth out” the impacts of Calpers’ investment losses due to the recession was reduced from 15 years to five years. The rates will be structured so the first five years of the new model will be a “ramp up” period to improve the plans funded percentage. So fiscal years 2016-2020 have higher rates, and then the rates will flatten out.

According to the figures presented to the City Council, Berkeley has $850 million of assets with the state pension scheme, but a further $428 million of unfunded liabilities. (Because of a change in accounting standards — to GASB 68 — the pension liabilities will be shown on the city’s statement of net assets from FY2015, rather than in the notes to the financial statements.)

“This is a pretty grim projection for the future,” said Mayor Tom Bates. “The assumption (on the rate increases) is there are no salary increases and no new employees. It’s difficult to imagine there won’t be an increase over that time. We’re headed for some really difficult decisions down the road, there’s no doubt about it.”

“Those numbers are shocking enough without seeing them going up,” said Capitelli. “People are retiring at an earlier age and living longer.”

Finance director Hicks said the primary driver for the rate increases is Calpers’ investment returns (see table above). In the year to June 30, 2013, its investments gained 13.2%, 5.7% higher than the assumed 7.5%. But that excellent year, and the likelihood of another bumper year to this June 30, does not make up for the severe losses in 2008, 2009 and 2012.

“This is not just a Berkeley problem, this is a major problem for the state of California,” Bates said. “The state needs to step into this. It’s going to hemorrhage all over the state. We’re putting ourselves in the position where there’s going to be a major hit on the economy.”